POWER CHECK: Workers from the National Grid check major powerlines in Chuzhou of east China's Anhui Province on May 1, in preparation for the coming summer, a peak time for local electricity consumption (SONG WEIXING)

Tax Scraped

China's taxation authorities announced on April 26 that they will scrap two taxes on interest paid on local government bonds, hoping to make the bonds more attractive to domestic investors.

The Ministry of Finance (MOF) and the State Administration of Taxation said in a joint document that companies and individuals will be exempt from corporate and individual income taxes on the interest they collect upon purchasing local government bonds issued in 2012 and later.

The preferential tax measures will only apply to those bonds issued by the MOF on behalf of the local governments of provinces, autonomous regions, municipalities and cities with independent budgetary status, according to the document.

Local governments are not allowed to float bonds directly in China, but they can ask the MOF to issue such bonds after obtaining approval from the State Council, China's cabinet.

About 350 billion yuan ($56.3 billion) in local government bond sales have been planned by the MOF for 2013, according to the government budget report. Local government bonds issued in 2012 totaled 250 billion yuan ($40.63 billion).

Explosive growth in local debt has raised concerns over the financial health of the Chinese economy, making the Chinese Government vigilant against financial risks this year. The most recent data available from the National Audit Office show that local debt had totaled 10.7 trillion yuan ($1.74 trillion) by the end of 2010.

Increasing Presence

China's direct investment in the United States showed strong momentum in the first three months despite a weak fourth quarter of 2012 and the negative impact of alleged "national security" concerns on some deals.

During the first quarter, Chinese companies concluded eight mergers or acquisitions (M&As) and nine green field investments— those involving construction of factories or offices —worth a total of $2.2 billion, according to a report released on April 30 by Rhodium Group, a New York firm that tracks Chinese investment in the United States.

Chinese acquisitions in the United States now under discussion or awaiting regulatory approval have a total value of over $10 billion, the highest ever for the category, according to the report.

The report also found that privately held Chinese companies have increased their investments. Over the past 15 months, they spent more on U.S. deals than in the previous 11 years combined.

National security remains a dominant topic in the U.S.-China investment relationship, the report said.

Cui Tiankai, China's new ambassador in Washington, expressed concern over barriers to Chinese investment in the United States. Cui said the United States has historically been a strong advocate of liberalized trade and investment and pressured China to be the same, but "what has been preached to us is not always practiced."